December's reading also brings inflation one step closer to the Bank of Japan's 2 percent target under Abenomics - a series of policy measured unrolled by Japanese Prime Minister Shinzo Abe to dig the Japanese economy out of a rut.

Japan sales tax hike won't derail economy: Pro

Martin Schulz, Senior Economist at Fujitsu Research Institute, explains why he thinks April's sales tax hike will not result in a significant consumption slowdown.

Core-core CPI excluding food and energy prices rose 0.7 percent on year in December, matching its August 1998 high.

Separately, Japan reported a 1.1 percent on-month rise in December industrial output, just shy of the Reuters forecast for a 1.2 percent rise.